7/07/2010 @ 5:50PM

State Street's Second Quarter Suprise

State Street announced Wednesday that it expects its second quarter earnings to far exceed Wall Street’s expectations.

On Wednesday
State Street
announced it expects to report sales of $2.3 billion and earnings per share of 87 cents for the second quarter of 2010, which includes both an aftertax charge of $251 million, or 50 cents per share, and a one-time tax benefit of $180 million, or 36 cents per share.

State Street, a money management firm that primarily caters to institutional investors, is due to release its full second-quarter report on July 19.

On an operating basis, State Street said it’s set to report second-quarter earnings per share of 93 cents on revenue of $2.2 billion. Wall Street, which typically measures earnings on an operating basis, anticipates a profit of 72 cents per share. Operating-basis results include a loss of approximately $48 million related to investment securities, as well as other charges.

Dan Fannon, an analyst at Jefferies, was pleased with the announcement. “Services revenue came in greater than expected, which was a function of new business wins, plus contributions from recent acquisitions,” he says. Fannon also cites seasonal factors, particularly the ending of the second quarter dividend season, and with that heightened foreign exchange volatility, that boosted sales.

Investors were pleased with the news, pushing shares of the firm up 9.9%, or $3.29, to close at $36.63. State Street’s stock has fallen since mid-April; nonetheless, the company has enjoyed some good news lately. In late June it announced it was chosen to provide hedge fund administration services for about $8 billion in assets managed by Anchorage Advisors.

Fannon notes that State Street, along with other financial stocks, are trading at discounted prices and could pick up with positive earnings reports.

The announcement was an encouraging sign for the financial sector, with a slate of earnings reports due in the coming weeks. Other firms such as
Northern Trust
and
Bank of New York Mellon
rose 6.9% and 6.4%, respectively, while big banks saw more modest gains, as
Bank of America
gained 4.6% and
Citigroup
2.9%.